Nets Lead The Way Back

Internet stocks led the market higher on Friday after the July employment report provided further evidence that the economy is slowing.

The ISDEX gained 12 to 730, and the Nasdaq added 13 to 3773. The S&P 500 rose 2 to 1454, but the Dow lagged for the second day in a row, slipping 29 to 10,677. Volume declined to 445 million shares on the NYSE and 715 million on the Nasdaq. Breadth improved from Thursday, with advancers leading decliners by 13 to 11 on the NYSE and 19 to 14 on the Nasdaq. July’s employment data showed a weaker-than-expected 108,000 jobs loss, but minus departing census workers, the private sector added 182,000 jobs. The unemployment rate was in line with estimates at a 4% rate, but hourly wages came in higher than expected at a 0.4% gain. Traders initially cheered the report, but then gains began slipping. For earnings reports, visit our earnings calendar and reported earnings.

After the bell on Thursday, Jupiter Communications blew away estimates by 18 cents with earnings of 11 cents a share. The stock rose 5/8 to 26 1/8 after trading as high as 30. Emulex rose 17 1/4 to 64 13/16 after beating estimates by 4 cents with 25-cent earnings. Netpliance slipped 3/4 to 6 3/4 after beating estimates by 3 cents with a 68-cent loss. theglobe.com beat estimates by 8 cents with a 33-cent loss, but the stock was unchanged at 1 5/8.

TIBCO Software gained 3 1/8 to 105 1/4 on news that it is buying XML developer Extensibility for $100 million in stock.

Cisco Systems tacked on another 5/8 to 65 after Morgan Stanley Dean Witter said it expects the company to exceed estimates by a penny next Tuesday. Cisco is expected to report earnings of 15 cents a share. Cisco fell below the important $60 level yesterday, but found support at its 200-day moving average at 58. A close above 70 would be bullish.

CMGI gained 1 5/16 to 37 9/16 on news that it will sell some assets of its Magnitude Network unit to GlobalMedia.com for $6 million in stock. For more on CMGI, click here.

Verio gained 1 1/2 to 53 7/8 on news that NTT remains committed to its $5.5 billion takeover bid.

CAIS Internet rose 1 11/16 to 9 3/4 on news that it had received a previously announced $40 million cash investment from Microsoft .

PlanetRX.com slipped 1/16 to 7/8 on news that chairman William Razzouk resigned to pursue other interests.

NBC Internet gained 5/16 to 10 3/16 on a USB Piper Jaffray Buy rating and $16 price target.

Vignette tacked on 5/8 to 40 5/8. The stock has risen 50% off its Wednesday low of 27 on news of alliances with IBM and Arthur Andersen. The stock turned back today at 42 5/8 after filling a gap down from last week, when it broke its uptrend.

Sonus Networks gained another 5 7/8 to 208, a day after soaring 24 points on a bullish conference presentation.

Among recent IPOs, Avici gave back 11 to 152 1/2, SpeechWorks gained 11 1/2 to 99, and Corvis gained 7 15/16 to 100.

Some technical comments on the market: Not much follow-through to yesterday’s high-volume reversal, but we have time. A high-volume follow-through rally any time in the next week would be a good sign. However, the Dow and the SPX continue to look like they are forming bearish flag patterns here, so the bigger backdrop continues to look bearish. The Nasdaq moved through 3750-3766 resistance today, but then turned back at

3846, about 50 points under its 200-day moving average. We still have potential downside to 3042, due to the break of a bearish rising wedge last week. A break and close below 3500 would be a big warning sign. The ISDEX turned back today at 741, just under the key 750-760 level that marks the lower boundary of its bearish rising wedge that was broken last week. That broken wedge gives the ISDEX potential downside to 560. Above the 750-760 level is 790 resistance, and above that, the ISDEX turned back recently at 840, just below its 50% retracement level of 845. Support levels on the ISDEX are 693-700, 650 and 600. The S&P 500 turned back at 1462 today, right around its 30-day moving average, which is followed closely by at least a few institutions. The S&P also broke a bearish rising wedge last week, with potential downside to 1361. The index found support yesterday at its 200-day moving average (1425). Critical support is 1390, the index’s October 1998 uptrend line. A break of that trendline could carry the S&P to 1170 or lower, so we do not want to violate that line. The Dow turned back last Friday after testing the lower boundary of its bearish diamond pattern (10,464, but we’ll continue to use 10,200-10,300 because of strong support in that range and the requirement of a 3% break of a major pattern). A break of that line could carry the Dow as low as 8,500. The upper boundary of the Dow’s bearish diamond pattern is just under 11,000. The Dow has run into resistance around 10,750 two days in a row, but has found support at the 10,675 level. The Dow’s recent rally was halted at 10,875.

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